Swaminathan S Anklesaria Aiyar in his usual column in Sunday Times of India referred to the arguments of Professor Arvind Panagariya of Columbia University that in dollar terms India is having a growth of 13% in is GDP annually. However, as we all know growth has averaged 8% in the last three years, and as predicted, it will be above 8% this fiscal too. Should Indian managers of its economy be given the credit for this third best growth rate of the world? Here are some results that can’t come only because of external reasons. And these are the results of certain prudent strategies and major structural changes even with huge lot of inefficient expenditures on popular programmes as we are the largest democracy.
India has surprisingly doubled its merchandise exports in just three years, from $52.7 billion in 2002-03 to $102.7 billion in 2005-06. And it is without previous instance of rapid export growth that was because of sharp falls in the rupee making exports temporarily competitive. During last three years, exports have boomed despite the rupee actually rising 9.3% against the dollar. So, for the first time, India is exporting on the basis of rising productivity, not unsustainable price cuts.
Service exports have more than doubled in the last two years, mainly to computer software. India now accounts for a respectable 2.5% of world service exports, against only 1% of world merchandise exports, and the share seems set to keep rising.
The share of exports of goods plus services in GDP has virtually tripled from 7.9% in 1990-91 to 20.5% last year. At this rate, India will catch up with China’s current ratio of 26% in three years.
Even with modest foreign direct investment into India, foreign portfolio investment has skyrocketed. So, total foreign investment has risen from almost zero when reforms began to $20 billion last year.
India tops today globally in remittances from overseas Indians that have risen to over $24 billion. And this explains why India’s forex reserves have risen to $165 billion, despite record oil prices and a record trade deficit.
Phone lines have increased from barely five million in 1990 to 140 million. Last month alone, six million new mobile phones were added. The telecom revolution is now set to penetrate rural areas too.
The share of agriculture in GDP has fallen from over half at Independence to just 21%. Food grains now account for only half of agriculture. Animal husbandry, fisheries fruits and vegetables are growing much faster. So the Indian economy is not heavily dependent on the monsoon. (like the one in 2002).
The maximum import tariff, once well over 100%, is now down to 12.5% , except for a short list of manufactured and agricultural produce. Import duty collections average only 5% of total imports, close to China’s rate of 3%. India can claim to be a fairly open economy.
Indian companies have the confidence of global financiers, who now rate Reliance Industries and Tata Steel as credit-worthier than Ford or General Motors.
GDP is measured in constant rupees (that is, rupees adjusted for inflation).
For global comparisons, GDP must be measured in dollars. World Bank data show that India’s GDP has shot up by a phenomenal 16.4% per year in the last three years (2003-06). Adjusting for the US inflation rate of 3%, India has been growing by 13.4% per year in inflation-adjusted dollars.
At this rate, Panagariya calculates, India will reach the current US GDP of $11.5 trillion in 2005 in just 22 years!
However, Panagariya says this is only hypothetical, and is not possible since the rupee cannot keep appreciating so fast against the dollar. This year, the rupee has dropped over 2% against the dollar.
But what about the BRIC (Brazil, Russia, India, China) report of Goldman Sachs that assumes, the rupee will in fact appreciate by an average of 2% per year against the dollar in coming decades.
And then comes the argument from another economists Sujit Bhalla, “Almost all the factors are in place to sustain more than 10 per cent economic growth annually, as the investment level in 2006-07 is over 40 per cent of GDP, a jump from the 25 per cent levels, just five years ago. At a 40% investment rate and at an ICOR of 3.5, the sustainable growth rate possible is 11.4%. This is one of the fastest jumps in history. If India achieves 10 per cent growth today, then it is likely to cross Chinese growth rate of 10.5 per cent by 2010.”
Should we say whatever the figures, those are just great? Let us keep it up without getting complacent. Let our Leftists friends should help India to further the growth by not being whimsical. And let us go by what Chidambaram says, ‘Now, fire up all engines’.
India can get all what it wishes, be it Nuclear pacts, Permanent membership of Security Councils, or other world organization or with unprecedented growth rate and after we can say goodbye to the poverty of our people. And all that can with sustainable higher growth rates at last for next few decades. It demands discipline and efficiency of all, by all, and for all.